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Vice Chairman Zhou Xiaochuan Speaks on Capital Stimulating Scientific and Technological Innovation at the Session of the International Science, Technology and Innovation Forum of BFA
Origin:Boao Forum for Asia      Time:2020-11-19 14:13:29    Views:21


Dr. Zhou Xiaochuan, Vice Chairman of Boao Forum for Asia (BFA), shared his view on financing channels for Scientific and Technological Innovation (STI) at the session titled "Cooperation on Innovation - Capital Stimulates Scientific and Technological Innovation" at the First Confirence of BFA International Science, Technology and Innovation Forum (ISTIF) of Boao Forum for Asia in Macau on 10th November. He shed light on internal and external corporate financing, capital market, and government support.

Dr. Zhou pointed out that both internal and external corporate financing channels are crucial for developing technology and encouraging innovation. The primary importance of internal financing should be recognized. The application of internal financing can be three-fold: firstly on R&D investment, secondly on equipment depreciation whose acceleration enables faster upgrading, and thirdly on incentives mechanisms, especially financial incentives to encourage sufficient inputs in technology and innovation. Incentive mechanisms also relate to intellectual property identification. In modern society, only a fraction of innventions come from individuals. There are few people like Chen Jingrun, who can prove Goldbach's Conjecture on their own. To conduct research, individuals rely on corporate or public research facilities and laboratories, which are unlikely to be privately owned. On the other hand, in universities, despite the availability of laboratories as well as equipments and materials, innovation still cannot be achieved without the active participation of individuals. This leads to the debate of whether intellectual property rights belong to individuals or the public. Therefore, effective and sufficient incentive mechanisms are required to encourage innovation.

The importance of internal financing can be seen by investigating available STI data and analyzing the internal and external inputs used by companies, addressed Dr. Zhou. It also depends on the fiscal soundness of different countries. Countries or regions with healthier fiscal conditions may have more policy space to offer financial incentives to companies. Those with fiscal shortages, high debt levels, and large deficits should have been more supportive of corporate STI, despite the opposite realities. 

Second, venture capital and talents are important for external financing. Dr. Zhou pointed out that venture capital shall be an important form of external STI financing. Even in a bank-based economy, debt financing still plays a relatively small role in supporting technology and innovation, while equity and venture capital financing prevails. He stressed that the overall atmosphere of society also has a strong influence. If the society is generally short-sighted and impatient, venture capitalists may choose easy profit-generating projects over long-term and risky technology projects. In recent years, China has seen a big reverse in this trend. As for talents, Dr. Zhou suggested that China's education and employment system valued specialization in the past, and this may not produce enough experts with knowledges and experiences in both STI and finance. By contrast, some venture capitalists in the US have STI background, so they can communicate with scientific and technical inventors using their own languanges. We hope to see more of such telants in China to narrow the interdisciplinary gaps.

Third, the support from capital markets is crucial. Dr. Zhou stated that relevant issues include IPOs, transactions and exists of venture capital, and taxation. Among these, the issue of capital gains tax calculation requires particular attention. For example, how to calculate the capital gains tax for a venture capitalist when only 1 of his/her 10 investments is successful? Capital gains tax is not currently applicable in China. But if it becomes applicable in the future, should the nine failed projects be included in the calculation of capital gains? Such tax policies call for deliberation and need to be fully supportive in regulations on tax base and cost.

Finally, Dr. Zhou noted that it is also important for governments to support innovations through public spending. Globally speaking, public spending on STI investment only takes a small percentage of GDP. So with this limited resource, it is necessary to focus on problems that cannot be solved by firms and markets. It would be better to direct more public support towards education, and to establish institutional mechanisms that are conducive to science and technology development and innovation. These mechanisms may include the sharing of intellectual property (knowledge and data) and the promotion of digital transformation, so that those who want to build a career in and make contributions to STI can have better access to knowledge, data, and experimental facilities at lower costs.

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